<<A friend has asked me for advice about the following situation. He has a Simple IRA with Schwab through an S-Corporation. The maximum contribution per year is $6000, which he had already contributed for 1999. Two months ago, Schwab accidentally transferred an *additional* $6000 (from nowhere) to the personal part of the account (leaving a negative $6000 balance in the company account). He invested that extra money in some stocks.Schwab has now apparently corrected the company account and transferred the $6000 deficit to the personal account. So the personal account now shows a *negative* $6000 money market balance, plus some stocks. Unfortunately, in the investment process, the stocks purchased with the extra $6000 have lost a fair amount.If he sells $6000 worth of stocks at this point to cover the deficit, is there a reasonable chance that none of this will get caught and cause future problems?Up to now, he has not brought this to Schwab's attention, nor has Schwab contacted him about it. Also, he wonders whether he can wait a little bit before selling, in the hope that his stocks bounce back some in value.>>Just on the surface, it looks like your friend was trying to pull a fast one. $6K appears in his taxable account from nowhere, so he says nothing and just invests it. The error is discovered, and $6K is transferred into his SIMPLE causing a $6K deficit in the taxable account compounded by the fact he bought stocks that immediately declined in value. He has told Schwab nothing yet.Sounds to me as if in effect he has bought those shares on margin. He probably has enough other assets in the account to cover that unintended loan. That may be why Scwab has said nothing. In any event, it's highly unlikely this situation will go unnoticed forever. IMHO, it's time he came clean with Schwab and 'fess up.' He'll have to work something out with the broker. Ignoring the situation won't make it go away. I wonder why he thought he had the right to use money that appeared "from nowhere" anyway. He knew (or should have) that something wasn't right. Common sense says he should have said something then instead of trying to use it for his own personal gain. Now he must live with the consequences, whatever they may be. Based on what you've outlined, this problem was caused by his inappropriate action. Thus, I find it hard to have any sympathetic feelings towards his plight.Regards..Pixy
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